68 HASKINS & SELLS September
Depreciation of Appreciation
THE book value of fixed assets frequently
is written up from cost so as
to reflect a current value. Although the
motive for taking appreciation into the
accounts sometimes is open to question,
in many cases it is the result of a legitimate
desire to place on the books bona fide increases
in value.
In this connection difficulties sometimes
are experienced in charging depreciation
on the appreciated assets.
Assume, taking a simple case with small
amounts in order to avoid undue involvement,
that a machine was purchased in
1921 at a cost of 310,000, with an estimated
life of ten years, and a probable
scrap value of $1,000 at the end of that
time. There would remain the amount of
$9,000 to be depreciated Over a period of
ten years, resulting in an annual depreciation
charge of $900. In 1926, at the
end of five years' service, the machine
would have a net book value of $5,500,
represented by its cost—$10,000—less an
accumulation of five years' depreciation
at $900 a year.
